Besides decreasing asset base, weak asset quality due to weak credit profile of the portfolio, SIFL has also witnessed a significant decrease in profitability in Q1FY20 due to increasing interest cost and higher provisions, declining capital adequacy ratio (CAR).

As on June 30, 2019, the CAR was 15.57 per cent (Tier-I CAR stood at 10.79 per cent), which is very close to the RBI-prescribed minimum capital adequacy requirement of 15 per cent constraining the growth of loan book.

However, the rating continues to derive comfort from the experience of the promoter group in line with infrastructure financing and equipment financing businesses.

The ratings also factor in established market position and brand name and adequate liquidity profile.

The outlook continues to be negative considering the risk of further weakening of asset quality, declining profitability and AUM and to monitor the ability of SIFL to borrow for continued growth while maintaining its cost of funds and profit margins. The ability to reduce its gearing is also a key monitorable.

SIFL's Consolidated Assets Under Management (AUM) has decreased from Rs 41,476 crore in FY18 to Rs 39,853 crore in Q1FY20. This is mainly due to SIFL strategically deciding to curtail disbursements due to stress in infrastructure segment and to maintain sufficient liquidity. At the same time, SIFL has curtailed its disbursements in Q1FY20, mainly due to capital adequacy being very close to the regulatory requirement of 15 per cent and the shift in focus on co-lending model.